Slice and Dice: Card Companies Slash Rewards Programs


Credit card consumers are under assault from all fronts, the latest being a sustained, industry-wide cutback on credit card rewards programs.

The trend toward lower reward options doesn’t make much sense at first glance — after all, what business wants to alienate its most loyal customers?

But card companies continue to struggle. According to the Web site, delinquency rates at five of the top six credit card issuers increased in September. With more cardholders owing more money, credit card companies have to look elsewhere to beef up the bottom line. And with tough restrictions coming from the Credit Card Reform Act (which kicks off in February), their options are limited.

"Issuers can't continue losing money. They have to find ways to make up the revenue, even if this angers Congress and consumers," says Bill Hardekopf, CEO of and author of The Credit Card Guidebook. "To make matters worse for issuers, some fees and rate hikes will be prohibited after certain provisions of the CARD Act goes into effect in February.”

That leaves rewards programs in the crosshairs of the credit card companies. Here are some of the ways that card issuers are pruning back on rewards programs.

Late payment triggers. The primary hammer that card issuers are wielding is through late payments. More and more card issuers, including Bank of America (Stock Quote: BAC), Chase (Stock Quote: JPM) and American Express (Stock Quote: AXP) are canceling reward points built up in a period where the card holder hasn’t paid his or her bill.

Very late payers. If you’re behind on your card payment by two months, some card companies will cancel your accumulated reward points outright. Discover Bank (Stock Quote: DFS) will cancel reward points for missing two straight monthly payments.

Lower percentage formulas. Card companies are also cutting back on reward percentages. Instead of earning 1% or even 1.5% for amounts charged on the card toward reward rebates, card issuers are cutting that rate down. American Express, for example, has slashed one of its card-back deals from 1.5% to 1.25%.

Higher point hurdles. Card companies are also forcing reward customers to work hard for the money. Staples like free hotel rooms and free airline flights are increasingly going for twice the point totals from years past. Citibank (Stock Quote: C), for example, now makes travel reward customers earn 40,000 points for a flight valued at $400 that’s up from 20,000 points previously.

What can reward customers do? For starters, make sure to pay your credit card bill on time. Set up automatic payments if you have to anything that helps you meet your monthly card payment obligations will keep trouble at arm’s length.

If you do lose points due to late payments, some card issuers will allow you to “buy them back." For example, American Express Blue Card customers charge customers $29 for each month’s worth of points that were lost.

It’s getting ugly out there in the credit card rewards market. While you can’t stop card issuers from cutting back on rewards, you can mitigate some of the damage by keeping your payments on schedule.

It sounds strange, but in the Age of Recession, prompt credit card payments have become a rewards program of their own.

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